Real estate investors with a few deals under their belt know that reliable financing for their projects can be tough to find. Loans from traditional lenders like banks or credit unions have an extensive application process and these lenders view certain investments, like fix and flips, as too risky. Plus, these types of loans aren’t ideal for investment projects due to their long turnaround times. Private loans, such as bridge loans offered by real estate lenders, are often the better solution to financing these types of projects. Continue reading to learn about bridge loans and how they can help you find success with your next real estate investment.
What You Need to Know About Bridge Loans
Bridge loans are a form of short-term financing offered by private lenders, typically ones that operate in the real estate space. They’re called bridge loans because they’re designed to “bridge” the gap between a purchase and securing more permanent funding for it. These loans differ from traditional mortgages due to their short-term nature, with loan periods ranging from 6 months to 2 years. The shorter term of the loan means you can expect to pay higher interest rates than standard mortgages, but they have the benefit of being easier to qualify for since they are backed by owned property. Bridge loans can also be easier to qualify for since they are asset-based; the financial eligibility of the borrower is less of a factor.
Advantages for Real Estate Investors
Bridge loans offer many benefits to investors over traditional mortgages. These include:
- Swifter property acquisition: Bridge loans have much quicker turnaround times than traditional loans. They can deliver funds in as little as 10 days after applying, which allows investors to seize time-sensitive opportunities.
- Flexibility in financing: Bridge loans offer investors flexibility in duration, unlike mortgage loans which lock you into 15 or 30-year periods. Instead, the loan can be tailored to the needs of your project. Many lenders also offer flexible repayment options, such as interest-only loans where the principal amount only becomes due at the end of the loan period.
- Increased purchasing power: Bridge loans provide investors with additional capital, even in situations where their funds are tied up in other investments. This increased leverage also allows them to secure more desirable properties in competitive real estate markets.
- Portfolio diversification: Bridge loans allow investors to diversify their portfolios by funding multiple investments at the same time. They can also be used to fund more diverse types of investments, such as fix and flips.
- Potential for higher returns: The types of projects you can fund with bridge loans offer greater returns than when using traditional mortgages. You have the option to invest in distressed or undervalued properties that have significantly higher potential for appreciation.
How to Find Success Using Bridge Loans
If you want to find success with an investment project, the key will be careful planning and execution. With bridge loans, there are also some other factors to consider. Here’s what you need to do to have a successful investment using a bridge loan:
- Select the property strategically: You will want to find a property that you know will be a profitable investment going forward. Riskier projects, such as fix and flips, have a high potential for appreciation but you will need to make sure they align with your personal risk tolerance.
- Conduct thorough due diligence: Doing your research pays off when you’re dealing with high value investments like real estate. Consider the surrounding market of your property and whether it will attract people to it or push them away. You will also want to pay for a professional property inspection to uncover those hidden issues which can be costly to fix, and completely ruin the return on your investment.
- Plan your exit strategy: A great deal can fall apart at the end if you just aren’t able to offload the property. Planning a good exit strategy will increase the likelihood of you being able to make a solid return. You may also want to consider having a backup strategy in place if you aren’t able to follow through with your first plan.
- Build a relationship with a reputable lender: Once you have already worked with a real estate lender, obtaining the financing you need for future projects will be much easier. A quality lender will also be able to provide you with resources and connections to help you find success with your investment project.
Do you have a real estate project you would like to obtain financing for? RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance an investment with a bridge loan, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.